Pre-qualification vs. pre-approval
You’ll hear the terms mortgage? pre-qualification? and pre-approval? used quite a bit on your homebuying journey. These terms may sound similar, and they are often used interchangeably, but they can have significant differences.
Getting pre-qualified provides you with an idea of how much you may borrow. The process is often quick and free. You’ll speak to a lender? who will collect information about your income and assets, which can be done verbally or through an online form without providing any supporting documentation. The lender will normally consider this information along with your credit report? and provide an estimate of the approved loan amount that you’ll likely receive. Keep in mind that pre-qualification is an estimate. You’ll be required to submit documentation of your income and assets to your lender in order to apply for the actual loan approval. Pre-qualification can, however, provide a realistic idea of the price tags you might consider when you begin your home search. It can also be viewed favorably when you submit a contract to purchase a home but not to the same degree as pre-approval.
Keep in mind that pre-qualification is an estimate. You’ll be required to submit documentation of your income and assets to your lender in order to apply for the actual loan approval.
Pre-approval lets the lender inform you as to whether you’ve been approved for a specific loan amount and, as with pre-qualification, it can be done before you’ve chosen a home. In essence it’s a stronger commitment from the lender. When you get pre-approved for a mortgage, you will provide your lender with documents that prove your income and other personal financial records. The lender will do a more in-depth review of your credit history and financial standing. Pre-approval typically takes a bit longer.
Benefits of pre-approval
Since pre-approval is a thorough evaluation of your financial health and history, it’s a bigger step in the homebuying process. The lender will review your income and asset documentation and tell you more accurately whether you qualify for a mortgage. The lender will likely share other details like how much they’ll lend you, the potential interest rate?, and even an estimate of monthly payments. Additionally, pre-approval may help you when looking for a real estate agent or making an offer. It shows that not only are you serious about buying a home but also that you’re financially qualified to do so.